"It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong." ~ George Soros

The Most Important Lesson That I’ve learned in the Market

Let me share to you one of the most important conversations in “Reminiscences of a Stock Operator”, which depicts the difference between the pros and the amateurs

Elmer: “Mr. Partridge, I have just sold my Climax Motors. My people say the market is entitled to a reaction and that I’ll be able to buy it back cheaper. So you’d better do likewise. That is, if you’ve still got yours.”

Turkey: “Yes, Mr. Harwood, I still have it. Of course!”

Elmer: “Well, now is the time to take your profit and get in again on the next dip,” said Elmer, “I have just sold every share I owned!”

Turkey: “It did, and I am much obliged to you, my dear boy. But I couldn’t think of selling that stock.”

Elmer: “Why not?”

Turkey: “Why, this is a bull market!”
(The old fellow said it as though he had given a detailed explanation.)

Elmer: “I know this is a bull market as well as you do. But you’d better slip them that stock of yours and buy it back on the reaction. You might as well reduce the cost to yourself.”

Turkey: “My dear boy, if I sold that stock now I’d lose my position; and then where would I be? And when you are as old as I am and you’ve been through as many booms and panics as I have, you’ll know that to lose your position is something nobody can afford; not even John D. Rockefeller. I hope the stock reacts and that you will be able to repurchase your line at a substantial concession, sir. But I myself can only trade in accordance with the experience of many years. I paid a high price for it and I don’t feel like throwing away a second tuition fee. But I am as much obliged to you as if I had the money in the bank. It’s a bull market, you know.”

Here’s an example: $PIP one of the solid growth stocks during 2012. from 2.00 went as high as 6.88. I remember back then most of the technical / fundamental analysts only saw this going at 4.00-4.50, after that they thought it was expensive or too high already.

Do you seriously think that after consolidating for 4-years, a stock will just go for a mere 20%-30% move?

Most traders are so eager to make a quick buck. People label themselves as a “TRADER” thinking they have to trade all the time to make money. In reality, they OVER-TRADE just to feel the fulfillment, the excitement, the rush. They try to watch the market everyday looking for ways to make quick money. They seek to predict each tick and capture each spike, thus they react to every short term market gyration. They go in and out of their positions with very high frequency. They think they’re so smart for making a quick 5% punt…… only to see the stock they sold move further by another 30% sometimes even 50% to 100%. Then they start wishing for a retracement so that they can buyback.

Oh… the great old buy back THAT NEVER CAME. They only realize their mistake once the stock has made it’s big move– like a 50% to 100% trend up. People fail to realize that the biggest trades doesn’t require much effort nor force. It’s just a matter of being right, and sitting tight. (which is easy to say, but very hard to do.), Traders don’t have to fucking trade all-day. Problem is most of us do not aim for the BIG $$$Money. Many of us subliminally stay in the markets just to fill our psychological need for EXCITEMENT.

Remember, BIG moves take TIME to develop. It is quite ironic, but for me, one of the most important aspects of being successful in the market is to have the discipline and patience to stay away from the screens when the market is already going according to your flow. This means shrugging off all the impulse and the excitementthat you get from seeing the current premature profit your position is showing.

Most amateurs feel excited during trading, because they are acting on impulse. Pros rarely feel excitement, because they are acting on their SYSTEM. There is no emotional attachment to a single particular trade, each trade is just a statistic. Pros are not here for the thrill, they are here to MAKE MONEY–BIG MONEY.